Aareal Bank AG — Call Transcript 2017

Nov 14, 2017

Analyst Conference Call Q3 2017 results

November 14, 2017 Hermann J. Merkens, CEO

Agenda

• Highlights
• Group results at a glance
• Segment performance
• Group results
• B/S structure, capital & funding position
• Asset quality
• Outlook 2017
• Appendix
• Definitions and contacts

Highlights Confirming FY-guidance after good third quarter

Highlights Political, economic as well as regulatory risks and uncertainties characterizing the actual environment, unchanged high competition in the commercial real estate lending business Despite further uncertainty and strong competition good operating performance in both segments Good quarter, operating profit of € 82 mn FY-outlook 2017 confirmed: Operating profit in a range of € 310 mn - € 350 mn expected Future program Aareal 2020 "on track"

Group results at a glance

Group results at a glance Good operative performance in Q3

€ mn	Q3 '16	Q4 '16	Q1 '17	Q2 '17	Q3 '17	Comments
Net interest income	175	169	164	158	164	Further portfolio reduction, high effects from early repayments
Allowance for credit losses	33	33	2	25	26	LLP below last year's figure and in line with full year target
Net commission income	44	56	48	49	48	Above previous year's level
Net result from trading / non-trading / hedge acc.	12	-5	-4	1	11
Admin expenses	127	130	139	129	120	Focus on strategic projects and investments
Others	3	28	4	55	5
Operating profit	74	85	71	109	82	Good quarterly operating performance
Income taxes	23	44	24	42	31	FY 2017e: 37% due to reversal of CCB provisions FY 2017e: 34% excl. reversal of CCB provisions
Minorities / AT1	9	8	9	5	4	Savings from redemption of hybrid instrument from Q2 2017 onwards
Consolidated net income allocated to ord. shareholders	42	33	38	62	47
Earnings per share [€]	0.70	0.55	0.63	1.05	0.78

Segment performance

Structured property financing

Strong new business margins, high early repayments

1) Incl. renewals

2) Incl. € 50 mn reversal of provisions set aside within the scope of the acquisition of Corealcredit Bank AG

Consulting / Services Aareon on track

P&L C/S Segment	Q3 '16	Q4 '16	Q1 '17	Q2 '17	Q3 '17
€ mn
Sales revenue	47	58	54	55	53
Own work capitalised	1	2	1	1	1
Other operating income	2	4	1	1	1
Cost material purchased	8	11	9	9	8
Staff expenses	36	37	35	36	38
D, A, impairment losses	3	2	3	3	3
Other operat. expenses	14	15	15	15	13
Others	0	0	0	0	0
Operating profit	-11	-1	-6	-6	-7

• Aareon revenues of € 51 mn (Q3 2016: € 49 mn), EBT of € 6 mn, EBT margin ~12%
• Aareon revenues resulting from growth in all product lines, digital and additional products with highest growth rates
• Deposit volume acc. to Aareal 2020 at Ø of € 9.7 bn in Q3 '17 (€ 9.6 mn in Q2 '17 / € 9.5 bn in Q3 '16)
• Focussing on further shift into sustainable deposits

Group results Q3 2017

Net interest income

Further portfolio reduction, high effects from early repayments

• Portfolio reduction by € 1.6 bn (vs. Q2 2017) due to
• High early repayments
• Rundown of CCB / WIB portfolio
• FX-effects
• Q3 pushed by effects from early repayments of € 20 mn in Q3 (€ 33 mn in 9M vs. expected FY-range of € 35 mn - € 75 mn)
• Deposit margins further burdened by interest rate environment

NII without effects from derecognition of financial instruments to be reported separately under IFRS 9 starting 2018 Effects from derecognition of financial instruments to be reported separately under IFRS 9 starting 2018 (mainly effects from early repayments)

Allowance for credit losses (LLP)

LLP below last year's figure and in line with full year target

Conservative lending policies paying off

Net commission income Above previous year's level

• Aareon revenues of € 51 mn (Q3 '16: € 49 mn) resulting from growth in all product lines, digital and additional products with highest growth rates
• Q4 regularly includes positive seasonal effects

Admin expenses

Focus on strategic projects and investments

• 9M includes (€ 388 mn vs. 9M 2016 of € 417 mn)
• € 22 mn for the European bank levy and for the Deposit Protection Guarantee Schemes
• € 24 mn for optimisation of processes and structures
• € 13 mn for projects and investments

B/S structure, capital & funding position

RWA development Successful RWA run down

• Reduction from
• High early repayments
• Rundown of CCB / WIB portfolio
• FX-effects
• Lower RWA density vs 12/2016
• Operational risk reduction mainly due to model update caused by regulatory changes in Q1
• Operational risk already based on standardised approach

Capital ratios Strong development

• Regulatory uncertainties buffered by very strong capital ratios
• Instruments assumed to mature until 2019 (planning period) are excluded from the fully phased ratios
• Bail-in capital ratio (acc. to our definition): above 8%
• T1-Leverage ratio as at 30.09.2017: 6.0% (fully phased)

Common Equity Tier 1 (CET1) Additional Tier 1 (AT1) Tier 2 (T2)

Asset- / Liability structure according to IFRS As at 30.09.2017: € 43.3 bn (31.12.2016: € 47.7 bn)

• Conservative balance sheet with structural over borrowed position
• Average maturity of long term funding > average maturity of RSF loans

45		1.0		(0.8) Interbank
40	3.0 (3.3) Interbank 10.3 (11.3) Treasury portfolio	4.0		(4.5) Customer deposits institutional clients
35 30	of which cover pools	9.3		(9.2) Customer deposits housing industry
25 20	25.6 (27.9) Commercial real estate finance portfolio	26.1	(29.1)	Long-term funds and equity of which
15				- 21.9 (24.8) long-term funds - 1.6 (1.7) subordinated capital - 2.6 (2.6) shareholders' equity
10 5
	Other assets1) 4.4 (5.2)	2.9		(4.1) Other liabilities
0	Assets			Liabilities & equity

1) Other assets includes € 0.9 bn private client portfolio and WIB's € 0.6 bn public sector loans

50

€ bn

Capital market funding Sound liquidity position

• Total funding raised in 9M of 2017: € 2.1 bn, mainly driven by Pfandbriefe of € 1.7 bn
• Very successful placement of two Pfandbrief benchmark transactions in US-Dollar and British Pounds:
• USD 625 mn 3Y
• GBP 250 mn 3Y
• Additional USD 250 mn 3Y senior unsecured (October 2017)
• Transactions show strong distribution power also in other currencies than Euro
• Fulfilling liquidity-KPIs
• NSFR > 1
• LCR >> 1

Refinancing situation

Diversified funding sources and distribution channels

• Aareal Bank has clearly reduced its dependency on wholesale funding
• 2002 long term wholesale funding accounted for 47% of overall funding volumes by 30.09.2017, this share has fallen below 25% (or even below 10% without Pfandbriefe)

As at 30.09.2017

Asset quality

Commercial real estate finance portfolio1) € 25.6 bn highly diversified and sound

1) CRE-business only, private client business (€ 0.9 bn) and WIB's public sector loans (€ 0.6 bn) not included

Commercial real estate finance portfolio1) Portfolio details

Spotlight: UK CRE finance portfolio1) € 3.6 bn (~14% of total portfolio)

1) CRE-business only, private client business (€ 0.9 bn) and WIB's public sector loans (€ 0.6 bn) not included

2) Performing CRE-business only, exposure as at 30.09.2017

Ø LTV: 57%

Spotlight: Turkey CRE finance portfolio1) € 0.4 bn (~2% of total portfolio)

1) CRE-business only, private client business (€ 0.9 bn) and WIB's public sector loans (€ 0.6 bn) not included

Spotlight: Italian CRE finance portfolio1) € 2.9 bn (~11% of total portfolio)

1) CRE-business only, private client business (€ 0.9 bn) and WIB's public sector loans (€ 0.6 bn) not included

Spotlight Italy Italian NPL: clear going forward strategy

• Restructuring period: vast majority to be solved till 2020
• Current enforcement period 3-4 years, but improving due to new legislation

All Italian NPL are fully covered despite being in different workout-stages

Commercial real estate finance portfolio1) Declining NPL volume but stable ratio

1) CRE-business only, private client business (€ 0.9 bn) and WIB's public sector loans (€ 0.6 bn) not included

Commercial real estate finance portfolio NPL exposure fully covered including collaterals

1) CRE-business only, private client business (€ 0.9 bn) and WIB's public sector loans (€ 0.6 bn) not included

Collaterals

Treasury portfolio € 8.6 bn of high quality and highly liquid assets

As at 30.09.2017 – all figures are nominal amounts 1) Composite Rating

Outlook 2017

Outlook 2017 Confirming guidance

	2017
Net interest income	 € 620 mn - € 660 mn incl. planned effects from early repayments (€ 35 mn - € 75 mn)
Allow. for credit losses1)	 € 75 mn - € 100 mn
Net commission income	 € 195 mn - € 210 mn
Admin expenses	 € 470 mn - € 510 mn incl. expenses for projects and investments / effects from integration
Operating profit	 € 310 mn - € 350 mn
Pre-tax RoE	 11% - 12.5% (9% - 10.5% excl. one-off from reversal of provisions related to CCB acquisition)
EpS	 € 2.85 - € 3.30
Target portfolio size	 € 25 bn - € 28 bn
New business origination2)	 € 7 bn - € 8 bn
Operating profit Aareon3)	 € 34 mn - € 35 mn

1) As in 2016, the bank cannot rule out additional allowances for credit losses

2) Incl. renewals

3) After segment adjustments

Conclusion Well positioned to continue our successful development

Key takeaways

Aareal Bank Group continues consequently its path in a unchanged challenging environment

The good third quarter results proof once more the operative performance of Aareal Bank Group as well as its solid and sound financial strength

Out of a position of strength, Aareal Bank Group safeguards its sustainable future development

Appendix Aareal 2020

Aareal 2020 – Adjust. Advance. Achieve. Our way ahead

Adjust

Safeguard strong base in a changing environment

As published February 23, 2017

• Enhance efficiency
• Optimise funding
• Anticipate regulation

Achieve

Create sustainable value for all stakeholders

• Realise strategic objectives for the Group and the segments
• Consistently implement required measures
• Achieve ambitious financial targets

Aareal 2020 – Adjust. Advance. Achieve.

We successfully started – in our operational business …

	Achievements so far	Focus 2017	Targets 2020 Plus
Structured Property Finance	 US-portfolio enhanced  Non-core assets reduced  Syndication volume increased  Servicing platform, cooperation signed	 Further enhancing of attractive markets, e.g. USA  Further reduction of non-core assets  Further increasing syndication, enhancing investor bases and product scope  Digitalisation of internal processes as well as clients' interface	 Expansion in markets with attractive risk return profile  Strengthened portfolio- and balance sheet management  New (digital) opportunities taken by enhancing value chain
Consulting/ Services	 Core business successfully enhanced  Digital platform developed and new digital solutions launched  International cross-selling increased  Network with start-ups enlarged, first cooperation signed	 Enlarging digital solutions portfolio  Tapping joint markets and customer groups, e.g. utilities and CRE  Intensifying cooperation, in particular with start-ups	 Eco system housing industry and utilities expanded  Existing platform products for the B2C business for the housing industry further developed  Further development of our payment transaction system and IT products as well as enlarging our customer base

As published February 23, 2017

Aareal 2020 – Adjust. Advance. Achieve … and investing in our organisation and IT

Achieve. Keep RoE on an attractive level despite difficult environment

RoE-Development (%)

Further medium-term increase is possible on the basis of a positive development of interest rate levels

Payout ratio 2013 - 2019 2013 48% 51% 52% 60% 70-80% 70-80% Base dividend We intend to distribute approx. 50% of the earnings per ordinary share (EpS) as base dividend Supplementary dividend In addition, we plan to distribute supplementary dividends, from 10% increasing up to 20-30% of the EpS Prerequisites: No material deterioration of the environment (with longer-term and sustainably negative effects) Nor attractive investment opportunities neither positive growth environment 2014 2015 2016 2017 2018 70-80% 2019

1) The future dividend policy applies provided that the dividend payments resulting from it are consistent with a long-term and sustained business development of Aareal Bank AG. In addition, the dividend payments are subject to the proviso that corresponding dividend proposals have been made by the Management Board and the Supervisory Board for the respective year.

Appendix Group results

Aareal Bank Group Results Q3 2017

	01.07.- 30.09.2017	01.07.- 30.09.2016	Change
	€ mn	€ mn
Profit and loss account
Net interest income	164	175	-6%
Allowance for credit losses	26	33	-21%
Net interest income after allowance for credit losses	138	142	-3%
Net commission income	48	44	9%
Net result on hedge accounting	1	3	-67%
Net trading income / expenses	10	4	150%
Results from non-trading assets	0	5
Results from investments accounted for at equity		0
Administrative expenses	120	127	-6%
Net other operating income / expenses	5	3	67%
Operating Profit	82	74	11%
Income taxes	31	23	35%
Consolidated net income	51	51	0%
Consolidated net income attributable to non-controlling interests	0	5
Consolidated net income attributable to shareholders of Aareal Bank AG	51	46	11%
Earnings per share (EpS)
Consolidated net income attributable to shareholders of Aareal Bank AG1)	51	46	11%
of which: allocated to ordinary shareholders	47	42	12%
of which: allocated to AT1 investors	4	4	0%
Earnings per ordinary share (in €)2)	0.78	0.70	11%
Earnings per ordinary AT1 unit (in €)3)	0.04	0.04	0%

1) The allocation of earnings is based on the assumption that net interest payable on the AT1 bond is recognised on an accrual basis.

2) Earnings per ordinary share are determined by dividing the earnings allocated to ordinary shareholders of Aareal Bank AG by the weighted average of ordinary shares outstanding during the financial year (59,857,221 shares). Basic earnings per ordinary share correspond to diluted earnings per ordinary share.

3) Earnings per AT1 unit (based on 100,000,000 AT1 units with a notional amount of 3 € each) are determined by dividing the earnings allocated to AT1 investors by the weighted average of AT1 units outstanding during the financial year. Earnings per AT1 unit (basic) correspond to (diluted) earnings per AT1 unit.

40

Aareal Bank Group Results Q3 2017 by segments

	Financing	Structured Property		Consulting / Services	Consolidation/ Reconciliation		Aareal Bank Group
	01.07.- 30.09. 2017	01.07.- 30.09. 2016	01.07.- 30.09. 2017	01.07.- 30.09. 2016	01.07.- 30.09. 2017	01.07.- 30.09. 2016	01.07.- 30.09. 2017	01.07.- 30.09. 2016
€ mn
Net interest income	167	179	0	0	-3	-4	164	175
Allowance for credit losses	26	33					26	33
Net interest income after allowance for credit losses	141	146	0	0	-3	-4	138	142
Net commission income	1	2	45	39	2	3	48	44
Net result on hedge accounting	1	3					1	3
Net trading income / expenses	10	4					10	4
Results from non-trading assets	0	5					0	5
Results from investments accounted for at equity				0				0
Administrative expenses	68	77	53	51	-1	-1	120	127
Net other operating income / expenses	4	2	1	1	0	0	5	3
Operating profit	89	85	-7	-11	0	0	82	74
Income taxes	34	27	-3	-4			31	23
Consolidated net income	55	58	-4	-7	0	0	51	51
Allocation of results
Cons. net income attributable to non-controlling interests	0	5	0	0			0	5
Cons. net income attributable to shareholders of Aareal Bank AG	55	53	-4	-7	0	0	51	46

Aareal Bank Group Results 9M 2017

	01.01.- 30.09.2017	01.01.- 30.09.2016	Change
	€ mn	€ mn
Profit and loss account
Net interest income	486	532	-9%
Allowance for credit losses	53	64	-17%
Net interest income after allowance for credit losses	433	468	-7%
Net commission income	145	137	6%
Net result on hedge accounting	-5	4
Net trading income / expenses	13	21	-38%
Results from non-trading assets	0	66
Results from investments accounted for at equity		0
Administrative expenses	388	417	-7%
Net other operating income / expenses	64	2
Operating Profit	262	281	-7%
Income taxes	97	88	10%
Consolidated net income	165	193	-15%
Consolidated net income attributable to non-controlling interests	6	15	-60%
Consolidated net income attributable to shareholders of Aareal Bank AG	159	178	-11%
Earnings per share (EpS)
Consolidated net income attributable to shareholders of Aareal Bank AG1)	159	178	-11%
of which: allocated to ordinary shareholders	147	166	-11%
of which: allocated to AT1 investors	12	12	0%
Earnings per ordinary share (in €)2)	2.46	2.78	-12%
Earnings per ordinary AT1 unit (in €)3)	0.12	0.12	0%

1) The allocation of earnings is based on the assumption that net interest payable on the AT1 bond is recognised on an accrual basis.

2) Earnings per ordinary share are determined by dividing the earnings allocated to ordinary shareholders of Aareal Bank AG by the weighted average of ordinary shares outstanding during the financial year (59,857,221 shares). Basic earnings per ordinary share correspond to diluted earnings per ordinary share.

3) Earnings per AT1 unit (based on 100,000,000 AT1 units with a notional amount of 3 € each) are determined by dividing the earnings allocated to AT1 investors by the weighted average of AT1 units outstanding during the financial year. Earnings per AT1 unit (basic) correspond to (diluted) earnings per AT1 unit.

Aareal Bank Group Results 9M 2017 by segments

	Financing	Structured Property	Services	Consulting /	Consolidation/ Reconciliation		Aareal Bank Group
	01.01.- 30.09. 2017	01.01.- 30.09. 2016	01.01.- 30.09. 2017	01.01.- 30.09. 2016	01.01.- 30.09. 2017	01.01.- 30.09. 2016	01.01.- 30.09. 2017	01.01.- 30.09. 2016
€ mn
Net interest income	494	542	0	0	-8	-10	486	532
Allowance for credit losses	53	64					53	64
Net interest income after allowance for credit losses	441	478	0	0	-8	-10	433	468
Net commission income	4	5	136	124	5	8	145	137
Net result on hedge accounting	-5	4					-5	4
Net trading income / expenses	13	21		0			13	21
Results from non-trading assets	0	66					0	66
Results from investments accounted for at equity				0				0
Administrative expenses1)	234	266	157	153	-3	-2	388	417
Net other operating income / expenses	62	1	2	1	0	0	64	2
Operating profit	281	309	-19	-28	0	0	262	281
Income taxes	104	98	-7	-10			97	88
Consolidated net income	177	211	-12	-18	0	0	165	193
Allocation of results
Cons. net income attributable to non-controlling interests	4	13	2	2			6	15
Cons. net income attributable to shareholders of Aareal Bank AG	173	198	-14	-20	0	0	159	178

1) € 24 million in provisions for staff-related measures, resulting from the optimisation of processes and structures within the scope of the "Aareal 2020" programme for the future, was allocated to the Structured Property Financing segment in full.

Aareal Bank Group Results – quarter by quarter

		Structured Property Financing				Consulting / Services				Consolidation / Reconciliation				Aareal Bank Group
	Q3 2017	Q2 2017	Q1 2017	Q4 2016	Q3 2016	Q3 2017	Q2 2017	Q1 2017	Q4 2016	Q3 2016	Q3 2017	Q2 2017	Q1 2017	Q4 2016	Q3 2016	Q3 2017	Q2 2017	Q1 2017	Q4 2016	Q3 2016
€ mn
Net interest income	167	160	167	174	179	0	0	0	0	0	-3	-2	-3	-5	-4	164	158	164	169	175
Allowance for credit losses	26	25	2	33	33											26	25	2	33	33
Net interest income after	141	135	165	141	146	0	0	0	0	0	-3	-2	-3	-5	-4	138	133	162	136	142
allowance for credit losses
Net commission income	1	2	1	5	2	45	46	45	47	39	2	1	2	4	3	48	49	48	56	44
Net result on hedge accounting	1	-3	-3	-4	3											1	-3	-3	-4	3
Net trading income / expenses	10	4	-1	-2	4											10	4	-1	-2	4
Results from non-trading assets	0	0		0	5				1							0	0		1	5
Results from results accounted									0	0									0	0
for at equity
Administrative expenses	68	77	89	80	77	53	53	51	51	51	-1	-1	-1	-1	-1	120	129	139	130	127
Net other operating income / expenses	4	54	4	26	2	1	1	0	2	1	0	0	0	0	0	5	55	4	28	3
Operating profit	89	115	77	86	85	-7	-6	-6	-1	-11	0	0	0	0	0	82	109	71	85	74
Income taxes	34	44	26	45	27	-3	-2	-2	-1	-4						31	42	24	44	23
Consolidated net income	55	71	51	41	58	-4	-4	-4	0	-7	0	0	0	0	0	51	67	47	41	51
Cons. net income attributable to
non-controlling interests	0	0	4	3	5	0	1	1	1	0						0	1	5	4	5
Cons. net income attributable to shareholders of Aareal Bank AG	55	71	47	38	53	-4	-5	-5	-1	-7	0	0	0	0	0	51	66	42	37	46

Appendix IFRS 9 / Defaulted exposure

IFRS 9 Remarks

First Time Application

• 1 January 2018
• Transition effects are recognised in equity

Classification and Measurement

• New model for the classification and measurement of financial assets (ac, fvoci or fvpl) based on business models and cash flow characteristics
• Aareal Bank will change B/S structure to measurement categories

Impairment

• Expected loss model:
• Stage 1: LLP based on 12-Month expected credit losses on recognition
• Stage 2: LLP based on lifetime expected credit losses on financial assets with significant increase in credit risk and
• Stage 3: LLP based on lifetime expected credit losses on impaired financial assets
• No LLP for financial assets fvpl, as it is part of gains/losses on the corresponding line item

Financial Statements

• B/S and P/L structure will change, eg. derecognition and modification gains / losses are added
• Extended Notes Disclosures for impairment and hedge accounting

Defaulted exposure

NPL development vs. defaulted exposure acc. Reg. Disclosure Report

Defaulted exposure acc. Regulatory Disclosure Report (AIRBA, off-balance) Defaulted exposure KSA

Appendix AT1: ADI of Aareal Bank AG

Interest payments and ADI of Aareal Bank AG

Available Distributable Items (as of end of the relevant year)

	31.12. 2016	31.12. 2015	31.12. 2014	31.12. 2013
€ mn
Net Retained Profit  Net income  Profit carried forward from previous year  Net income attribution to revenue reserves	122 122 - -	99 99 - -	77 77 - -	50 50 - -
+ Other revenue reserves after net income attribution	720	720	715	710
= Total dividend potential before amount blocked1)	842	819	792	760
./. Dividend amount blocked under section 268 (8) of the German Commercial Code ./. Dividend amount blocked under section 253 (6) of the German Commercial Code	235 28	287 -	240 -	156 -
= Available Distributable Items1)	579	532	552	604
+ Increase by aggregated amount of interest expenses relating to Distributions on Tier 1 Instruments1)	46	46	57	57
= Amount referred to in the relevant paragraphs of the terms and conditions of the respective Notes as being available to cover Interest Payments on the Notes and Distributions on other Tier 1 Instruments1)	625	578	609	661

1) Unaudited figures for information purposes only

Appendix SREP

SREP (CET 1) requirements

Demonstrating conservative and sustainable business model

• SREP requirement 2017 conceptual adjusted from CET1 approach to total SREP capital requirements (TSCR) approach
• Corresponding total capital requirement 2017 (Overall Capital Requirement (OCR) incl. buffers, phase-in) amounts to 11.03%. As of 31 Dec 2016 total capital ratio (phase-in) amounts to 27.5%

1) SREP-CET1 Requirements incl. buffers (Capital Conservation and Countercyclical) As published February 23, 2017

Pillar 1 Requirement Pillar 2 Requirement Capital Conservation Buffer Current CET 1 ratio Countercyclical Buffer

Appendix Development commercial real estate finance portfolio

Development commercial real estate finance portfolio1) Diversification continuously strengthened (in € mn)

1) CRE-business only, private client business (€ 0.9 bn) and WIB's public sector loans (€ 0.6 bn) not included

Western Europe (ex Germany) CRE finance portfolio1) Total volume outstanding as at 30.09.2017: € 8.0 bn

1) CRE-business only, private client business (€ 0.9 bn) and WIB's public sector loans (€ 0.6 bn) not included

German CRE finance portfolio1)

Total volume outstanding as at 30.09.2017: € 3.6 bn

1) CRE-business only, private client business (€ 0.9 bn) and WIB's public sector loans (€ 0.6 bn) not included

Southern Europe CRE finance portfolio1) Total volume outstanding as at 30.09.2017: € 4.0 bn

1) CRE-business only, private client business (€ 0.9 bn) and WIB's public sector loans (€ 0.6 bn) not included

Eastern Europe CRE finance portfolio1) Total volume outstanding as at 30.09.2017: € 1.9 bn

1) CRE-business only, private client business (€ 0.9 bn) and WIB's public sector loans (€ 0.6 bn) not included

Northern Europe CRE finance portfolio1) Total volume outstanding as at 30.09.2017: € 1.3 bn

1) CRE-business only, private client business (€ 0.9 bn) and WIB's public sector loans (€ 0.6 bn) not included

North America CRE finance portfolio1) Total volume outstanding as at 30.09.2017: € 6.4 bn

1) CRE-business only, private client business (€ 0.9 bn) and WIB's public sector loans (€ 0.6 bn) not included

Asia CRE finance portfolio1) Total volume outstanding as at 30.09.2017: € 0.3 bn

1) CRE-business only, private client business (€ 0.9 bn) and WIB's public sector loans (€ 0.6 bn) not included

Appendix Revaluation surplus

Revaluation surplus

Appendix RWA-split

From asset to risk weighted asset (RWA) Essential factors affecting volume of RWA

Effective date 30/09/2017

1) Amounts to € 34 mn

From asset to risk weighted asset (RWA) Essential factors affecting volume of RWA

Effective date 31/12/2016

1) Amounts to € 36 mn

2) Amounts to € 1 mn

Sustainability Performance

Aareal Bank Group Stands for solidity, reliability and predictability

1) Full Basel III implementation, as at 30.09.2017

67

• 2) CRE business only, private client business (€ 0.9 bn) and WIB's public sector loans (€ 0.6 bn) not included, as at 30.09.2017
• 3) Mortgage Pfandbriefe and Public-sector Pfandbriefe rated AAA by Fitch; Mortgage Pfandbriefe rated Aaa by Moody's
• 4) At our main locations in Wiesbaden and Mainz, selected other German and international sites

Sustainability data Extends the financial depiction of the Group

Key takeaways at a glance

Transparent Reporting – facilitating informed investment decisions

• SUSTAINABILITY DISCLOSURES 2016¹ , structured according to requirements of EU Directive 2014/95/EU "Disclosure of non-financial and diversity information", is based on Global Reporting Initiative (GRI) G4 guidelines, in compliance with "in accordance - core" option
• PricewaterhouseCoopers AG prepared a limited assurance engagement on materiality analysis / selected data

Sustainability Ratings – confirming the company's sustainability performance

MSCI	Aareal Bank Group with "AA Rating" in highest scoring range for all companies assessed relative to global peers reg. Corporate Governance practices [as per 02/2017]
oekom	Aareal Bank Group holds "prime status", ranking among the leaders in its industry [since 2012]
Sustainalytics	Aareal Bank Group was classified as "outperformer", ranking among the best 14% of its industry [as per 03/2017]
GRESB	Aareal Bank Group scores 56 out of 100 in GRESB Debt Assessment [as per 08/2017]
imug	Aareal Bank was rated "positive BBB" in the category "Uncovered Bonds"; the second best result of all 109 rated Financial Institutions [as per 03/2017]

1) https://www.aareal-bank.com/en/responsibility/reporting-on-our-progress/sustainability-reporting/

Definitions and contacts

Definitions

• Structured Property Financing Portfolio = Paid-out financings on balance sheet
• New Business = Newly acquired business incl. renewals + Contract is signed by customer + Fixed loan value and margin
• Common Equity Tier 1 ratio = CET1 Risk weighted assets
• Pre tax RoE = Operating profit ./. income/loss attributable to non-controlling interests ./. AT1 cupon Average IFRS equity excl. non-controlling interests, other reserves, AT1 and dividends
• CIR = Admin expenses Net income
• Net income = net interest income + net commission income + net result on hedge accounting + net trading income + results from non-trading assets + results from investments accounted for at equity + results from investment properties + net other operating income
• Net stable funding ratio = ≥ 100% Available stable funding Required stable funding
• Liquidity coverage ratio = ≥ 100% Total stock of high quality liquid assets Net cash outflows under stress
• Bail-in capital ratio = Equity + subordinated capital (Long + short term funding) – (Equity + subordinated capital)
• Earnings per share = operating profit ./. income taxes ./. income/loss attributable to non controlling interests ./. net AT1 cupon Number of ordinary shares
• Yield on Debt = Net operating income (NOI) x 100 Current commitment incl. prior / pari-passu loans

Contacts

• Jürgen Junginger Managing Director Investor Relations Phone: +49 611 348 2636 juergen.junginger@aareal-bank.com
• Sebastian Götzken Director Investor Relations Phone: +49 611 348 3337 sebastian.goetzken@aareal-bank.com
• Carsten Schäfer Director Investor Relations Phone: +49 611 348 3616 carsten.schaefer@aareal-bank.com
• Karin Desczka Manager Investor Relations Phone: +49 611 348 3009 karin.desczka@aareal-bank.com

Disclaimer

© 2017 Aareal Bank AG. All rights reserved.

• This document has been prepared by Aareal Bank AG, exclusively for the purposes of a corporate presentation by Aareal Bank AG. The presentation is intended for professional and institutional customers only.
• It must not be modified or disclosed to third parties without the explicit permission of Aareal Bank AG. Any persons who may come into possession of this information and these documents must inform themselves of the relevant legal provisions applicable to the receipt and disclosure of such information, and must comply with such provisions. This presentation may not be distributed in or into any jurisdiction where such distribution would be restricted by law.
• This presentation is provided for general information purposes only. It does not constitute an offer to enter into a contract on the provision of advisory services or an offer to purchase securities. Aareal Bank AG has merely compiled the information on which this document is based from sources considered to be reliable – without, however, having verified it. The securities of Aareal Bank AG are not registered in the United States of America and may not be offered or sold except under an exemption from, or pursuant to, registration under the United States Securities Act of 1933, as amended. Therefore, Aareal Bank AG does not give any warranty, and makes no representation as to the completeness or correctness of any information or opinion contained herein. Aareal Bank AG accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of, or in any way connected with, the use of all or any part of this presentation. The securities of Aareal Bank AG are not registered in the United States of America and may not be offered or sold except under an exemption from, or pursuant to, registration under the United States Securities Act of 1933, as amended.
• This presentation may contain forward-looking statements of future expectations and other forward-looking statements or trend information that are based on current plans, views and/or assumptions and subject to known and unknown risks and uncertainties, most of them being difficult to predict and generally beyond Aareal Bank AG´s control. This could lead to material differences between the actual future results, performance and / or events and those expressed or implied by such statements.
• Aareal Bank AG assumes no obligation to update any forward-looking statement or any other information contained herein.